What is the basic equation used in the income approach to property valuation?

The correct answer is based on the fundamental principle underlying the income approach to property valuation, which focuses on the potential income-generating capacity of a property. The equation "Income ÷ Rate = Value" succinctly represents how market value can be derived from expected income streams.

In this context, the "Income" refers to the net operating income that the property generates, while the "Rate" typically represents the capitalization rate—an indicator of the expected return on investment. By dividing the income by this rate, one can estimate the present value of the property based on anticipated future income. This is crucial because investors often evaluate properties primarily through the lens of their income-producing potential.

The incorrect options do not accurately define the relationship represented in the income approach. For example, the option reflecting "Sales price = Cost + Profit" emphasizes a different valuation methodology, such as the cost approach, whereas "Value = Income × Rate" misrepresents the capitalization process since it suggests direct multiplication rather than the necessary division to find value based on income and rate. Lastly, the option concerning "Expenses - Revenue = Profit" pertains to accounting principles and profitability, which are not directly the focus of the income approach to valuation itself.